King won't lower himself to comment on Blanchflower, so long as everyone understands he's got it completely wrong

Before we start, let me first make one thing absolutely plain. I am not going to lower myself to commenting on the disgraceful attacks on my integrity and judgement by that bastard Danny Blanchflower, who I have had the misfortune of having to deal with up until recently on the Bank of England's Monetary Policy Committee.

OK, so that's not quite what Mervyn King, Governor of the Bank of England, said at this morning's appearence before the House of Commons Treasury Committee, but it is a reasonable precis. Mr King then went on to spend much of the first hour of his grilling defending himself and the MPC from the substance of Mr Blanchflower's attack, though in fairness to Mr King, it has to be said that MPs seemed to be interested in little else.

Mr Blanchflower, who retired from the MPC in May, last week penned an article for the New Statesman in which he laid in to Mr King for ruling the MPC with "an iron fist" and claimed that clever though Mr King undoubtedly was, he missed the crash and the coming recession and therefore the MPC missed it too. The Bank of England's Inflation Report of August last year was dismissed by Mr Blanchflower as little more that "wishful thinking", and he contended that had the MPC followed his advise to lower interest rates at an earlier stage, the downturn might not have been so bad.

As if all this was not bad enough, what seems really to have got Mr King's goat was the allegation that while Mr Blanchflower was still on the MPC, the Governor had summoned Mr Blanchflower in to give him a ticking off for speaking out publicly over that August Inflation Report. Mr King conceded to MPs that up to a point this was true, but he had done so at the urging of other members of the MPC, who thought that for Mr Blanchflower so casually to dismiss a report that he himself had participated in and signed to up was "unhelpful".

In any case, Mr King insisted that Mr Blanchflower's recollection of events was not the same as his. Now please don't think Mr King is commenting on "that article", but for Mr Blanchflower to have spoken out in this way was "unwise and not sensible".

As for the substance of Mr Blanchflower's claim that the UK economy would be in better shape had the MPC followed his prescription of lower interest rates, which he had been proposing for at least nine months prior to the crisis, Mr King doubted it would have made any difference. The sudden and internationally syncronised nature of the downturn would not have been affected by the sort of marginal changes in interest rates proposed by Mr Blanchflower in 2008, Mr King insisted. It was all very well with the benefit of hindsight to say policymakers should have acted differently, but if policymakers had perfect hindsight there wouldn't have been a crash in the first place.

What about Mr King's supposedly despotic rule of the MPC? This was nonsense too, as demonstrated by the fact that Mr King has been in the minority on the interest rate decision on at least three occassions.

MPs were so obsessed with the row with Mr Blanchflower that they almost forgot to ask about the economy. For those interested in such trivia, Mr King didn't have much encouragement to offer. At present, most financial institutions around the world are focused on recuperation, he pointed out, giving them a powerful incentive to be cautious about extending new credit to households and businesses. That's acting as a direct drag on demand. The crisis has also caused households and companies to want to strengthen their own financial positions, which provides a further brake on spending. These factors are going to restrict recovery for the foreseeable future.

On quantitative easing, Mr King said he understood the concerns of those who saw the policy of buying up public debt with newly created money as inflationary. However, growth in broad money in Mr King's judgement would have fallen precipitously but for QE. Now there are signs that it is picking up once more, though growth in money remains below the historic norm of 6-9 per cent. Deciding whether the QE already applied would eventually come through, or whether more might have to be done to achieve the desired result, was an extraordinarily difficult judgement to make.

In any case, the UK economy was still a long way from the sort of pick up in money growth and spending that would pose a serious inflationary effect. Mr King also said he would consider cutting the Bank of England's discount rate to discourage banks hoarding reserves, which has been one of the things that may have prevented the full effects of the QE programme from getting through to the real economy.

But back to the cuckoo in the nest, Danny Blanchflower. Now what I really want to know is…..